Early FI – Random Thoughts (April 24, 2017)

When it comes to early FI (and well, I guess life in general), it’s human nature and tendency to look at things from a linear perspective… I think that’s probably why when somebody actually gets to early FI and then reflects back they’re kind of left scratching their head and wondering:

“Oh shit, what the hell just happened?”

I can vouch for that because that’s kind of how it went for me… I was just some regular engineering drone from Silicon Valley who basically went from Inception to End Game from 2012-2016.

So, yeah, not too much time at all…

How did everything happen for me?

In short — Exponential growth.

Sure, I worked hard and saved a lot of dough… that’s kind of a given (and a must) for anyone with the burning desire to get to early FI before the age of 40… But quite frankly, I’m quite adamant that the bulk of my progress came via the offensive gameplan. In other words, I was able to make outsized gains with my investments.

These days, it’s no secret to readers that when it comes to investing, I’m really only a fan of a few (undervalued) sectors right now.

In particular, I really like: gold, silver, copper, lithium, cobalt… And to a lesser extent, nickel, zinc, uranium, and graphite.

Bull/bear markets can take years to develop and unfold (even though most retail investors are beyond impatient and will demand for instant gratification)…

Right now, I’ll be the first to admit that it’s pretty damn boring times in the precious metals space…

Zzzzzzzzzz…

For the most part, these gold/silver mining stocks are just stuck consolidating, and if anything, there are even a few companies/stocks making new lows for 2017 (go figure)… Anyone who got into these shares way back in August/September 2016 is most likely hurting pretty bad right now, myself included…

Hey, that’s just how the game goes… much of the time… Deal with it or don’t bother playing!

Mining stocks are an extremely volatile asset class, so if you’re going to invest/speculate here, you better have an iron stomach! I’ve emphasized that from the very beginning, but hey, if it makes you feel any better, I’m down quite a few pretty pennies (dollars) here too… I’m currently holding many positions which are down -20% or more…

You win some, you lose some… I never said I was good with market timing!

Still, once we get over the emotional hurdle/rollercoaster that mining stocks take us on, well, it’s just business as usual… In other words, I’m cool with seeing my portfolio down a few $100,000 since the peaks of last summer, because fundamentally speaking, I really don’t think much has changed at all… I’m still extremely bullish on gold and silver, and if anything, I feel like it’s more important than ever for investors to have some exposure into the space… Of course, “some” is relative… I’m one of those “go big or go home” type of investors, so I’ve got no problem placing $800k or so of my own money “all on black”, so to speak…

Again back to linear vs. exponential growth…

Am I bored out of my freekin’ mind with this precious metals trade, waiting for it to turn?

On some days, most definitely… I’m only human…

The day-to-day game of Micro Investing is most uneventful, uninteresting… and it’s where we reside 99% of the time…

Oftentimes, I wish I had a fast-forward button…

But I don’t, and I know when I step back and re-assess things, I realize that when it comes to exponential growth, the turning point ALWAYS tends to happen “in the blink of an eye.”

It’ll literally be “we’re here” one minute and then the entire sector is off to the races and “gone with the wind” the next.

Like Bay Area real estate.

Like Tesla Motors (TSLA).

So, with precious metals, and even lithium and cobalt, basically all of my mining stocks, I’m just trying to get my portfolio positioned before all the hoopla and hype sets in…

Nope, I can’t catch the bottom… and my track records show that I obviously haven’t come close to that!

But I much, much, much prefer trying to pick out the bottoms and looking/feeling like a total idiot in the short-term (when practically nobody else gives a shit to buy) as opposed to sprinting full speed ahead, chasing after runaway trains leaving the station at a time when everyone and their dog is aggressively bidding prices up to the moon (now history will CLEARLY show this is usually how I’ve gotten burned with my past investment decisions)!

Regardless, when the tide finally does turn (and I believe without a shadow of a doubt that it will someday relatively soon), I think these mining stocks (which are greatly leveraged to the underlying commodity) will go for a spectacular vertical ride.

If/when that happens, the gains that we’ve all been waiting so patiently for will FINALLY be realized!

And I might as well just say it now — I also won’t come close to cashing out at the top…

Doesn’t matter.

You don’t need EXACT market bottoms or tops to come out a winner playing mining stocks…

As I mentioned in a previous post, all I’m looking for right now is somewhere in the ballpark of another 50% increase in the overall portfolio. Should that happen, I would like to believe that I’ll be logical/rational/practical/sane enough to just call it a day and cash out my gains…

I know, I know… It’s easier said than done, so we’ll see!

Until then, it’s just a Game of Patience.

I’m starting to really understand why so few investors are ever able to make big-time gains playing mining stocks… The pullbacks (cyclical bear inside a secular bull) are so steep (say -50% corrections) and they last for soooooo long, that it really does wonders in shaking out the “weak hands”. Only a very select few individuals will have enough conviction and patience to see this trade through to the very end…

A six month massacre for a few of my holdings: Teranga Gold (TGZ.TO/TGCDF), Klondex Mines (KLDX), and Pilbara Minerals (PLS.AX/PILBF).

No, I don’t believe I’m a part of that “very select few” crowd… I’m weak sauce!

But I can weather some storms…

Again, I’m just trying to get another rip or two in my favor, and then I want to check out for good… I don’t think I have what it takes to ride this trade out to the very end, but like I said, I don’t think anyone really needs to in order to profit quite nicely from it, at the end of the day.

…

In other news, a reader recently asked me what my thoughts are regarding TargetCorporation (TGT)?

Yes, it’s true that I don’t talk about dividend growth stocks (or real estate) much on this blog anymore… but that doesn’t mean that I have sworn off these type of investments for good (far from it)…

As readers know, I just detest chasing after investments that are priced at/near record highs…

I much prefer going after low-hanging fruit…

With that said, anytime something (an asset of quality) is down -33.4% over the last year, well you’ve kind of got to stop and pay attention!

I haven’t deep-dived into studying TGT, but on the surface, I can see it’s now sporting ~4.4% yield, which is pretty damn juicy, I must confess. I’m not the biggest fan of the retail space (it’s a tough business), but this precipitous decline in share price has really sparked my interest; no, I most likely won’t be purchasing up shares of TGT anytime soon, but it gives me a ray of hope as to what could potentially happen to other large cap blue chip dividend paying stocks…

I don’t have a working crystal ball, so your guess is as good as mine as to when the overall stock market will crash…

But if eventually we can get a plethora of deals like TGT (a bunch of Dividend Aristocrats selling off in tandem), well damn, I’ll start feeling like a kid in a candy store all over again!!

And the same applies to high quality cash-flowing rental properties…

Dream on you say?

It’ll happen… I’m sure of it.

At the end of the day, it’s all about Macro Investing — All asset classes behave like sine waves and go up and down… There is NO SUCH THING as straight-line perpetual growth!

Never forget that… because most investors do (especially at market tops)!

Real estate and the S&P 500/Dow Jones/Nasdaq/etc. have all had their time in the sun since early 2009…

Mining stocks were in the toilet from 2011-2015…

One is due for a bear and the other is due for a bull… Nothing personal, just the natural changing of the seasons…

That’s why I’m so convinced that this whole mining stocks trade will ultimately work out (and pay out) successfully.

And that’s why I continue to believe wholeheartedly that one day in the future, I’ll be able to turbocharge my passive income/cash flow again at a time when I can pick up the best Buy and Hold Forever assets for pennies on the dollar.

I suppose you might have a few losers in the mining sector, but every time I calculate your basis price versus actual you are way up. A very nice position to be in given that you feel the sector is still substantially undervalued.

Your bay area real estate portfolio must be doing pretty well these days as well from a valuation standpoint. I recently came across an article talking about a twitter employee earning $160,000 a year and feeling poor in the Bay Area primarily due to housing cost. Granted, not a great time to buy more real estate but nice to own some previously bought at lower prices.

I do tend to think the general stock market indexes are in potential bubble territory moving forward. We all agree that market cycles exist and the general market has been moving up since 2009. There are a lot of 401K’s out there that probably look pretty healthy right now. That could change over the longer term if a recession kicks in at some point. Everyone says “you can’t time the market” and while that is true one can look at a stock market chart. Markets never go straight up forever. Particularly some tech stock valuations just don’t make sense to me.

Thanks Jay.
So for Teranga, for example, since it is down 40% (and down further today) from six months ago, is your plan to wait until it rebounds 250% to get back to where it was six months ago and then you are out? Or do you need it up more than 250% in order to book profit? I’m guessing you feel confident that it will rebound that much at some point during the next couple years (hopefully sooner than later).

There are other sectors than mining that are very unpopular and way down. Various shipping sectors have been collapsing over the last year (or more) and are now nearing a new up-cycle (tankers, container, dry bulk). Some of the 3D printing stocks are also unpopular, sp forming bottom or recovering. GE bought too.

With individual stocks, trying to time the bottom is fruitless. You can look at support and resistance, but sometimes the company will just go to $0. Target is a retailer, mainly bricks and mortar. Retailing is dead.

I focus on dividend ETFs so I never have to sell and pay taxes on capital gains, until I want to. I can spend the dividends and let the stock run, or just reinvest.

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